This week, Australia appears to be dominating bitcoin headlines. One day after the head of the Reserve Bank of Australia (RBA) said that peer-to-peer decentralized digital currencies pose a risk to the financial system, the tax agency is soon expected to confirm new tax rules on bitcoin and other virtual currencies.
The Australian Tax Office (ATO) will soon release a ruling on how the virtual currency will be treated for tax purposes. Some experts say that the announcement could pose significant consequences and ramifications on using the digital currency in the land down under.
ABC Online recently obtained Freedom of Information documents that highlighted how the ATO will decide whether or not it will classify bitcoins as money akin to foreign exchange currencies or to classify it as goods. If cryptocurrency is not treated like money then various taxes and accounting practices could be applied to bitcoin transactions.
For quite a while now, Australia was not concerned about the digital currency market when it was first established five years ago. However, since the bitcoin industry has expanded rapidly authorities and tax officials have become worried about tax evasion schemes. There are also concerns from public officials that China could gain tremendous influence if bitcoin is adopted across the country.
If bitcoin is treated as something other than money then there could be complications in the GST.
“If a merchant sells a widget for 100 bucks and that customer then wants to pay in Bitcoin and the merchant wants to receive Aussie dollars at the end of the day… then a GST will be levied on that entire 100 amount,” Jason Williams, President of the Bitcoin Association of Australia, told Dynamic Business on Tuesday.
“It’s actually a double-whammy GST if Bitcoin is treated as non-monetary supply. If the tax department comes out and says Bitcoin is not money it makes everything more expensive. That basically makes everything in Australia more expensive by ten per cent if you’re using Bitcoin.”
Despite the potential negative effects, the very notion that the ATO is assessing the tax implications of bitcoin could assist in the legitimization of the virtual currency industry.
“The simple fact that they’re thinking about it already adds a huge air of legitimacy. They are not dismissing it or sweeping it under the carpet. Bitcoin is a real thing,” Williams added.
RBA head’s bitcoin warnings
We reported Monday of how RBA Governor Glenn Stevens warned that bitcoin could provide a substantial challenge to regulators and law enforcement agencies because monitoring the cryptocurrency industry could take up a lot of resources, a commodity that governments don’t have due to budget restraints and weak economies.
However, Stevens defended the bitcoin community by saying that investors should take responsibility and accept risks for any losses in their purchases, sales, mining operations or trades that could transpire.
“Those who seek high returns, and are prepared to accept the risk, should be allowed to do so. There is value in that occurring,” said Stevens.
In April, the Australian central bank stated in a report that the $7 billion bitcoin market could disrupt money policy and incite instability into the financial markets.
